Expect Call of Duty To Drive Activision Blizzard’s Near Term Growth

by Trefis Team
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Activision Blizzard
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Activision Blizzard (NASDAQ:ATVI) is seeing steady growth in its Activision segment, led by Call of Duty: WWII. However, Blizzard has seen a decline in average monthly active users in the first half of 2018. Looking forward, both the segments will likely perform better in the coming quarters, given the upcoming releases of new titles. The company’s Q2 numbers announced last week topped street estimates, and we forecast a mid-to-high single digit revenue growth for the full year. We have created an interactive dashboard ~ What Is The Outlook For Activision Blizzard ~ on the company’s expected performance in 2018. You can adjust the revenue and margin drivers to see the impact on the company’s overall revenues, earnings, and price estimate.

Expect Activision & Blizzard Segments To See High Single Digit Revenue Growth

We forecast Activision and Blizzard segment revenues to grow in high single digits in 2018. Activision in particular is benefiting from Call of Duty: WWII, which was released in November last year. The segment will continue to grow in the near term, as the company releases Call of Duty: Black Ops later in the year. Looking at the Blizzard segment, the monthly active user base has shrunk in the first half of 2018, and this has impacted the revenue growth. However, we expect the segment to rebound in the second half, led by World of Warcraft: Battle for Azeroth, which is scheduled for release next week. In the long run, we anticipate new launches and regular content updates to keep the users engaged for a longer duration, thereby increasing overall revenue growth for both Activision and Blizzard segments.

King Digital is seeing a decline in the monthly active users in the recent quarters, and we expect this trend to continue in the near term. However, the segment revenues were up in Q2, led by expansion of its live services. The company’s management in the recent earnings conference call stated that Candy Crush Saga grew year-over-year, with strong engagement trends. In fact, the average revenue per active user has been trending higher despite the fall in user base. King Digital’s advertising also saw bookings ramp up in Q2. As such, we forecast a decline in the user base for King while we expect the average revenue per active user to grow in the near term, and beyond.

Overall, we believe that Call of Duty will be the key growth driver for Activision Blizzard in the near term. We currently estimate the company’s overall revenues to be a little under $7.50 billion, of which 38% can be attributed to Activision, 30% to Blizzard, and King Digital & Others making up for the rest. We forecast the adjusted EPS to be $2.62 in 2018, and TTM price to earnings multiple of 30.5x to arrive at our price estimate of $80 for Activision Blizzard. This implies a premium of over 10% to the current market price.

 

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